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Best Stocks for a Donald Trump Presidency

Gage Skidmore via Wikipedia

As the Republican Party formally nominates Donald Trump, investors may want to position their portfolios for the November election by considering stocks likely to benefit from a win by either candidate. In searching for potential beneficiaries of a Trump presidency, we examined the candidate’s statements and positions on energy, immigration, free trade and more. Of course, neither Trump nor Hillary Clinton, the presumptive Democratic Party nominee, will be able to unilaterally push through his or her agenda after taking office. That’s because the Senate could very well flip into Democratic hands following the election, while the House is likely to retain its Republican majority.

The following seven stocks are our top picks that could pop if Trump is elected.

Best Stocks for a Donald Trump Presidency

Coach

Trump’s tax plan calls for cutting taxes for top earners. Among other things, he would lower the highest federal income tax bracket to 25% from the top rate of 43.4% and ax the alternative minimum tax, a supplemental assessment that tends to boost tax bills for more well-heeled filers. He also plans to crack down on imports of counterfeit goods from China. Both policies should spell a win for the high-end accessories maker, which charges more than $1,000 for some of its handbags.

Coach is aiming to spruce up its brand as it digs itself out of a two-year stretch of declining sales, caused in part by an over-reliance on discounting. The company is aiming to reduce its use of online promotions and its presence in department stores. Instead, Coach has been working to lure customers into its own stores and to persuade them to pay full price, by offering limited-edition runs of new items, such as its current Mickey Mouse–themed purses and wallets.

Coach’s most recent results were encouraging. For the quarter that ended March 26, sales were up 11% from the same period in 2015 and earnings per share of $0.40 were up 27%. The company generates more than enough free cash flow (cash profits after capital expenditures) to cover its annual dividend rate of $1.35 per share.

Best Stocks for a Donald Trump Presidency

ExxonMobil

Trump may be better known for his vow to resuscitate the coal industry than for any statements he’s made about oil, but he is more likely to give the oil industry a boost, says Paul Christopher, head global market strategist for the Wells Fargo Investment Institute. “There are strong market forces stacked against coal,” Christopher says. “Oil has more immediately favorable prospects, especially if prices rebound in the coming years as we expect.”

Exxon, the world’s largest energy company that isn’t government-owned, offers a conservative way to bet on favorable oil trends. Exxon doesn’t need oil prices to rise in order to make money. Even as the price of oil slid from $108 a barrel in June 2014 to $26 last February, Exxon remained profitable thanks to cost cutting and results from its sizable refining and chemical operations, which benefit from lower oil prices (low energy prices mainly hurt the exploration-and-production part of the business). Exxon’s shares have returned 3.4% annualized over the past three years, compared with an annualized loss of 2.3% among large diversified energy companies.

Best Stocks for a Donald Trump Presidency

The Geo Group

Geo Group, a for-profit prison operator, is under the political gun. Both Clinton and her biggest rival for the Democratic nod, Sen. Bernie Sanders of Vermont, have voiced desires to shut down the for-profit prison industry. Geo’s stock has shed 24% of its value since April 2015, when both Clinton and Sanders announced their candidacies. That has driven up the stock’s dividend yield to 7.7%, a figure so high that it suggests that investors think the company may have to cut its payout. Trump, by contrast, has said he believes private prisons work better than government-run penitentiaries. So Geo shares could rally if Trump wins the presidency.

Through a partnership with U.S. Immigration and Customs Enforcement, Geo also operates eight facilities that house immigrant detainees. If Trump were to follow through on his campaign-trail promise to deport all of the estimated 11 million undocumented immigrants living illegally in the U.S., demand for Geo’s services could explode.

Geo Group is set up as a real estate investment trust. As such, it doesn’t have to pay corporate income taxes as long as it passes along at least 90% of its earnings to shareholders as dividends. REITs are typically valued in relation to funds from operations, a figure that typically adds back depreciation to reported earnings. Josh Duitz, comanager of the Alpine Global Infrastructure Fund, which owns the stock, says Geo’s shares, trading at 11 times estimated year-ahead funds from operations, are well-priced compared with other REITs.

Best Stocks for a Donald Trump Presidency

La-Z-Boy

Trump has vowed to force some American companies to bring their foreign manufacturing operations back to the U.S. It’s unclear if or how he might achieve this, but any policies designed to promote U.S. manufacturing could potentially help La-Z-Boy, which makes almost all of its signature recliners, sofas and other furniture in its five U.S. plants, using domestic and imported materials. Moreover, La-Z-Boy would suffer less injury than many other U.S. manufacturers, such as automakers, under protectionist trade measures, because only 11% of its sales come from outside the U.S.

The company has been expanding its store count. It aims to reach 400 Furniture Galleries locations by 2019, compared with 315 such stores in 2014. That should help it capitalize on a continued housing recovery. La-Z-Boy’s earnings per share have grown at an average annual clip of 28% over the past five years. Because earnings growth has eclipsed share-price appreciation (the stock has returned 24% annualized over the past five years), La-Z-Boy shares still look reasonably priced.

Best Stocks for a Donald Trump Presidency

Merck & Co.

To be sure, neither presidential contender is exactly chummy with the pharmaceutical industry, and under either candidate the industry may face increased regulatory scrutiny of drug prices. But Wells Fargo’s Christopher says Democrats are more likely to favor price caps, while Republicans are likely to prefer negotiating drug-price growth rates—a more favorable approach for the industry.

Merck boasts a terrific lineup of current top sellers, including treatments for Type 2 diabetes, HIV and arthritis. Sales declined for four straight calendar years through 2015 as the company lost patents on some of its key drugs. But the worst of those losses is now behind Merck, and the company has two new promising drugs just hitting the market. Zepatier, a drug that treats hepatitis C, received approval by the Food and Drug Administration in January. Keytruda, a promising drug that fights cancer using a patient’s own immune system, received approval in October for treating certain types of lung cancer and is up for FDA review in August for treating additional cancers. The stock has returned 14% year-to-date, yet still looks reasonably priced compared with other large drug makers.

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Best Stocks for a Donald Trump Presidency

Smith & Wesson

We understand that investing in a gun manufacturer isn’t for everyone. But a Trump win would certainly have the potential to curb efforts to enact tougher gun-control laws. According to Trump’s campaign website, the candidate, who has been endorsed by the National Rifle Association, opposes any bans on types of guns or magazines.

Shares in the maker of handguns and assault rifles have performed astonishingly well. Over the past five years, Smith & Wesson shares have soared eight-fold, or 52% annualized, compared with 12% annualized for Standard & Poor’s 500-stock index. Gerry Sullivan, manager of the USA Mutuals Barrier Fund, which owns the stock, says even a Clinton win could provide a short-term pop for the stock. That’s because the threat of new gun-control legislation actually tends to boost the stock, as existing or prospective gun owners rush to make new purchases. A Trump win, on the other hand, might provide more long-term benefits.

Best Stocks for a Donald Trump Presidency

Vulcan Materials

The nation’s roads and other infrastructure are overdue for a makeover, and they might just get it if Trump is elected president. Trump has voiced unequivocal support for infrastructure spending, even calling for a national project on the scale of the New Deal. Increased spending on roads, bridges and highways would be a boon for Vulcan Materials, the largest U.S. producer of construction aggregates, such as gravel and crushed stone. Roughly half of the company’s shipments go to public-sector projects such as highways.

Commercial construction provides the other major source of demand for Vulcan’s materials. That’s a plus, because building warehouses, parking garages, office buildings and hotels typically requires more of Vulcan’s materials than does construction of houses. Nonresidential private construction has been in recovery mode since 2011, and Vulcan’s stock price has followed its upward trajectory. The shares have returned 27% annualized over the past five years.

One more potential boost for Vulcan if Trump wins: Building a wall along the border with Mexico would require more than 8 million cubic yards of concrete, according to estimates by The Washington Post.